Question

Exercise 9-62 (Algorithmic)
Completing a Bond Amortization Table (Effective Interest Rate Method)

Cagney Company sold $220,000 of bonds on June 30, 2010. A portion of the amortization table appears below.

Period	Cash Payment (Credit)		Interest Expense (Debit)		Discount on Bonds Payable (Credit)		Discount on Bonds Payable Balance		Carrying Value
12/31/11	$9,900		$10,177		$277		$2,340		$217,660
6/30/12	9,900		10,230		330		2,010		217,990
12/31/12	?		?		?		?		?

1. Indicate the stated interest rate on these bonds.
  %

2. Calculate the effective annual interest rate on these bonds (rounded to the nearest 0.1 percent).
  %

3. Determine the interest expense and discount amortization for the interest period ending December 31, 2012. If required, round your answers to the nearest whole dollar.

Period	Cash Payment (Credit)		Interest Expense (Debit)		Discount on Bonds Payable (Credit)		Discount on Bonds Payable Balance		Carrying Value
12/31/11	$9,900		$10,177		$277		$2,340		$217,660
6/30/12	9,900		10,230		330		2,010		217,990
12/31/12

4. Determine the liability balance after the interest payment is recorded on December 31, 2012. If required, round your answer to the nearest whole dollar.
$   

Answer 1

Req 1:
Par value of Bonds				220000
Semi annual interest paid				9900
Interest rate for semi annual perriod				4.50%
(9900/220000*100)
Annual Stated interest rate				9.00%
Req 2:
Carrying value on 31.12.11				217660
Interest expense on 30.06.12				10230
Market rate for 6 months				4.70%
(10230/217660*100)
Annual Market rate of interest				9.40%
Req 3:
Period	Cash payment		Interest	Discount	Balance in		Ccarrying
			Expense	On bonds	Discount on bonds		Value
3112..12	9900		10246	346	1664		218336
Req 4:
The Liability after interest of Dec 31 2012:
Bonds payable-Gross			220000
Less: Discount on bonds payable			1664
Net liability of Bonds payable			218336